Dollar hit by trade optimism led by Trump's remarks

The dollar's recent rally paused on Wednesday as hopes for the United States and China trade deal spurred demand for riskier currencies. The greenback index's eight-day winning run came to an end overnight to push it away from a two-month peak. The New Zealand dollar was the stand-out performer in early Wednesday trading, adding more than 1.5 per cent after a less dovish than expected central bank announcement.

The trade dispute between the world's two biggest economies has hung over global markets since mid-2018, and any sign of a credible detente has tended to boost sentiment. U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China "slide for a little while," if the two sides were close to a complete deal.

Officials in Washington and Beijing are having a round of talks this week to try and hammer out an agreement. That, together with a deal to avert another partial U.S. government shutdown, sent equity markets soaring and supported riskier currencies.

"There is optimism in the market and you could argue that is why people no longer want to buy the dollar and want to try some risk," said Jane Foley, currencies strategist at Rabobank. Foley, however, noted that the euro/dollar exchange rate had remained stuck in a "choppy range" in recent months because of a fundamental deterioration in the economic outlook in both the U.S. and the eurozone - uncertainty that could support more dollar upside.

"There is a lot of evidence that global growth is slowing and a lot of evidence to be suspicious of an end to the U.S.-China trade war. There will still be a long way to go," she added. The dollar index rose 0.1 per cent to 96.811, while against the euro it rose 0.1 per cent to $1.1315.

"We seem to have moved away from dollar dominance over the last two sessions," said Michael McCarthy, chief markets strategist at CMC Markets. The day's big mover was the New Zealand dollar, which rallied as much as 1.7 per cent to $0.6852 after the Reserve Bank of New Zealand sounded less dovish on policy than markets had expected, forcing a round of heavy short covering. The Australian dollar, a barometer for global risk assets, added 0.3 per cent to $0.7120. The dollar rose versus the yen to 110.72.